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Lula Star Loses Luster as Brazil Corruption Allegations Pile Up

Fresh allegations that former Brazilian President Luiz Inacio Lula da Silva was part of a cash-for-votes scandal have dealt another blow to the popular leader, diminishing the odds of him running for office again.

A businessman sentenced to 40 years in prison in the scandal told prosecutors in September that he transferred funds twice to Lula aides to pay for the former president’s personal expenses, newspaper O Estado de S. Paulo reported yesterday, citing sealed testimony it obtained. The charge comes weeks after federal police uncovered an alleged influence-peddling system coordinated by a woman Lula appointed to run his Sao Paulo office while he was president.

Lula’s Workers’ Party, or PT, intends for President Dilma Rousseff to run for re-election in 2014, with Lula stepping in as a “Plan B” candidate if Rousseff suddenly loses popularity or the opposition mounts a credible threat, said Joao Augusto Castro Neves, analyst at political risk consulting firm Eurasia Group. Rousseff had more support than Lula in the first Ibope poll for the 2014 election.

“I don’t think he’s seen as God anymore,” Castro Neves said in a telephone interview from Washington. “Plan B is still possible, but unlikely if you add up all these scandals and question marks surrounding Lula’s image.”

Polling firm Ibope said Rousseff was spontaneously named by 26 percent of the electorate as their preferred choice for president in 2014, the most among potential candidates, while Lula garnered 19 percent. The poll was carried out in 143 towns from Nov. 8-12 and had a margin of error of two percentage points.

First Time

This is the first time Lula has been accused of wrongdoing by any of the dozens of lawmakers, bankers and former aides convicted in the case, which is known as the “mensalao,” or big monthly payment, because it involved diverting public money to pay off legislators to vote with the government. Brazil’s opposition is urging prosecutors to investigate the allegations, and the chief justice of the Supreme Court said yesterday an inquiry should be opened.

“It’s a lie,” Lula said to reporters in Paris yesterday, declining to comment further.

The prosecutor’s office won’t comment on an investigation of Lula until the mensalao proceedings are over, said an official who declined to be identified because of internal policy.

Rousseff was applauded by members of her cabinet after defending Lula and referring to their friendship in the presence of French President Francois Hollande yesterday.

’Immense Respect’

“I repudiate all attempts -- and this would not be the first -- to take away the immense respect the Brazilian people have for him,” Rousseff told reporters in Paris after an event in the Elysee Palace. “It’s regrettable, these attempts to damage president Lula’s image.”

Rousseff declined to comment further, saying such questions are better addressed in Brazil.

Marcos Valerio, an advertising executive who was the main conduit in the votes-for-cash scheme, sought out prosecutors after being convicted in September by the Supreme Court of fraud, corruption and money laundering. The Workers’ Party used public funds to bribe lawmakers from 2003 to 2005, the court found.

Fraudulent Loans

Valerio told prosecutors that Lula approved fraudulent loans from Banco BMG SA and Banco Rural SA that the high court said were used to buy votes in Congress, according to O Estado. Lula also negotiated with Miguel Horta, former chief executive officer of Portugal Telecom SGPS SA (PTC), a 7 million-real ($3.4 million) payment to the PT and himself received a 100,000-real payment for personal expenses, the newspaper said.

The Social Democracy Party, or PSDB, Brazil’s biggest opposition party, asked federal prosecutors to open an investigation into Lula’s involvement in the scandal and want Valerio to testify in Congress, Bruno Araujo, leader of the PSDB in the lower house, said yesterday.

As the visible operator of the mensalao apparatus, Valerio lacks credibility, and his word is unlikely to convince the Brazilian people, whose incomes leaped due to Lula’s social policies, said Alexandre Barros, managing partner of political risk consulting firm Early Warning.

“As long as things actually improve over the next two, three years, combined with the incompetence of the opposition, Lula and Dilma have a good chance, though I don’t think Lula will run,” Barros said by telephone from Brasilia yesterday.

High Popularity

Rousseff’s approval rating stood at 77 percent in September even as the economy heads for its second-worst performance in 13 years, with economists surveyed by the central bank forecasting growth of 1.03 percent, down from 2.7 percent in 2011 and 7.5 percent in 2010.

Still, Unemployment remains at record lows, and Brazil’s consumer confidence level in November reached its highest level in nearly two years.

At the very least the new allegations tarnish Lula’s image abroad, Eurasia Group’s Castro Neves said.

“He thought he could win a Nobel Peace Prize for all his social policies and being one of the people responsible for reducing poverty,” said Castro Neves. “After these scandals that’s highly unlikely to happen.”

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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